Wal Mart de Mexico SAB de CV
BMV:WALMEX

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Wal Mart de Mexico SAB de CV
BMV:WALMEX
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Price: 53.49 MXN 3.08% Market Closed
Market Cap: 933.2B MXN
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Earnings Call Transcript

Earnings Call Transcript
2017-Q4

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Operator

Good afternoon, ladies and gentlemen. Welcome to Walmart de México y Centroamérica's Fourth Quarter 2017 Earnings Conference Call.

P
Pilar de la Garza
executive

Good afternoon. This is Pilar de la Garza, Investor Relations Senior Director for Walmex. Thank you for joining us today to review the results for the fourth quarter and full year 2017.

On today's call with me are Guilherme Loureiro, President and Chief Executive Officer for Walmart de México y Centroamérica; and Olga González, Chief Financial Officer.

The date of this call is February 15, 2018.

Today's call is being recorded and will remain available at www.walmex.mx.

Before we start, let me remind you that the content of this call is property of Wal-Mart de México S.A.B. de C.V. and is intended for the use of the company's shareholders and the investment community. It should not be reproduced in any way.

This call may contain certain references concerning Wal-Mart de México S.A.B. de C.V.'s future performance that should be considered as good-faith estimates made by the company. These references only reflect management's expectations and are based upon currently available data. Actual results are always subject to future events, risks and uncertainties, which could materially impact the company's actual performance.

Now I would like to turn it over to our CEO, Guilherme Loureiro.

G
Guilherme Loureiro
executive

Thank you, Pilar, and good afternoon, everyone. Thank you for joining us to review Walmex's fourth quarter and full year 2017 results.

In 2017, we faced several macroeconomic headwinds, natural disasters and temporary store closures due to protests related to gas price increase. Despite these challenges, we were able to keep our growth momentum and, more importantly, to maintain our customers' preference.

The hard work and commitment of our associates, the focus on operating with excellence and a robust financial strategy allowed us to deliver solid results.

Not only our results were positive, but we also managed to improve our competitive position. We widened our price gap by 40 basis points. And according to our Customer Experience Index, we are delivering a more enjoyable shopping experience.

During 2017, we also stepped up our efforts towards becoming the leading omnichannel retailer in Mexico. We continued to add critical capabilities by investing in key areas of the business such as logistics and eCommerce.

I would like to begin by discussing sales performance, and then Olga will cover the financial details of the quarter. Please consider that when I talk about Central America, I will refer to figures on a constant currency basis.

We had a good fourth quarter to close out 2017. Total revenues grew 6.8% in the quarter and increased 7.7% for the year.

In Mexico, revenues grew 7.8% in the quarter and 7.6% in the year. While in Central America, revenue grew 8.5% during the fourth quarter and 8.7% in the year.

Same-store sales were the main growth drivers. In the fourth quarter, same-store sales in Mexico grew 6.4% and in Central America, 4.8%. During the year, same-store sales grew 6.3% in Mexico and 4.9% in Central America. We surpassed the 3% to 5% guidance that we gave.

I would like to highlight that our 2-year stock growth for same-store sales was 14.3% in Mexico and 9.8% in Central America. This is an indication of how consistent our results have been in the past years, and clearly demonstrates the progress we have made in executing our strategy. Growth was broad based, sustainable and profitable.

In Central America, all countries delivered same-store sales growth. Nicaragua was the country with the highest growth while Guatemala had a lower but yet strong growth.

We drove house growth across all regions in Mexico as well. The Northern region of the country had the highest same-store sales growth, followed by the Central, Southern and Metro regions.

Now looking at the performance by format in Mexico.

Sam's Club had an outstanding performance in sales, driven by continued strength in new member acquisition. Strategic investments in member value, merchandise relevance and the integration of digital and physical like the implementation of Club Pickup boosted their performance.

Bodega also posted strong results. Their signature campaign, Aurrera, was recognized as Mexico's #1 campaign by sales value, surpassing every competitor.

They also accelerated expansion and reinforced their position as Mexico's largest retailer. During the year, Bodega Aurrera opened store 500 and reached 1,820 stores in total.

Walmart Supercenter's results were robust. The focus on Every Day Low Prices, constant innovation to improve customer experience and the solid execution of seasonal events were key to the format's performance.

Superamas delivered a lower but still positive growth. We are constantly seeking opportunities to improve our business, and we're implementing strategic initiatives in key departments, such as pharmacy and fresh, that will strengthen the value proposition of the format.

In terms of merchandise divisions, we continued to make significant progress on driving price leadership and widening our price gap across all divisions. We have further improved our competitive position by negotiating effectively with suppliers and reinvesting productivity savings in price.

During the quarter, our core division, food and staples, delivered the highest growth, followed by apparel and general merchandise, which also posted robust results.

Last year, all the self-service stores were successfully converted in Centers of Excellence. This concept was key to our good performance. I'm amazed by what our team has accomplished and their relentless focus on customer experience. Now our biggest challenge is not just to keep up the standard and discipline but to continue looking for ways to improve our business and serve our customers seamlessly.

Regarding our performance versus competitors. During 2017, we outpaced every ANTAD division. We surpassed the ANTAD total, which comprised self-serve department and specialty stores, by 250 basis points. Every month of the year was ahead of the market. Specifically on the self-service side, we grew 160 basis points ahead of our competitors. In fact, every merchandise division recently grew ahead of ANTAD. The apparel division grew 340 basis points above ANTAD; general merchandise, 200 basis points; and food and staples, 106 basis points. I would like to highlight that we have outpaced ANTAD's self-service division for the last 12 quarters.

We are moving fast to respond to the market opportunities as well as to innovate to transform the shopping experience, and our customers are rewarding us with their loyalty.

Now moving to new stores growth. During the year, we opened 125 new stores, 78 in Mexico and 47 in Central America, which compares to 92 new stores opened in 2016. We are accelerating expansion in a profitable and sustainable way. In 2017, the contribution from new stores was 2.2%, 40 bps more than in 2016.

2017 was a year of building foundation for our eCommerce business. We made key steps towards achieving our goal of developing the best omnichannel experience through our low-cost platform. At the beginning of the year, we announced the launch of Club Pickup. And considering the pickup locations of our self-serve format, we ended the year with more than 500 stores offering pickup service throughout the country. By leveraging our assets, we have been able to give a fresher and quicker service to our customers.

Another milestone in our omnichannel journey was the launch of a marketplace offering through our walmart.com.mx site. We are expanding our reach to new customers through differentiated merchandise in an asset-light way. As of December 2017, we had enrolled more than 230 sellers and increased our catalog almost 3x. We have strategic plans for each category to continue expanding the online assortment.

This year, the eCommerce business, which comprise grocery home shopping and general merchandise operations, grew 34%. eCommerce sales contributed 30 basis points to sales growth and represented 1% of total sales.

Last but not least, I would like to mention some achievements in our corporate responsibility efforts. I'm proud to share with you that Walmex has been included in the first sector-neutral Bloomberg Gender - Equality Index. We are one of the 104 companies chosen to join in our world index after the evaluation of over 9,000 companies in 24 countries and 10 sectors. We are the only retailer company current in the index.

We also received HRC Equity MX certification granted by the Human Rights Campaign Foundation due to our policies and practices in favor of the diversity and inclusion of the LGBT + community. Walmex is the only retail company that has achieved this certification.

Regarding environmental methods, we were included in Newsweek Green Rankings in 2017, being the best ranking Mexican company and the second best retailer in the world. We are working to build trust not just on our price, but also trust for the way we engage in the communities we serve.

In summary, despite a challenging environment, we were able to deliver solid results and to balance the short and the long term. I would like to thank all our associates because of their commitment. We will continue to serve our customers in a seamless way and deliver for our shareholders.

We expect the volatility to continue in the new year. But we are confident that we will continue to accelerate growth.

With that, I'll turn it over to Olga, who will cover the financial results.

O
Olga González
executive

Thanks, Gui, good afternoon to all of you. First, let's talk about the quarterly results.

I am pleased with the way we ended the year. During the fourth quarter, Mexico reinforced its competitive position. Total revenues grew 7.8%; gross margin contracted by 20 basis points to 21.5%, primarily due to price investments during the holiday period; and expenses grew 6%, significantly below total revenue growth. We achieved expense leverage by operating with discipline and solid sales growth.

Operating income grew 8.6% and EBITDA margin expanded by 10 basis points to reach 10.3%.

Now moving to Central America. During the quarter, total revenues grew 8.5% on a constant currency basis. Gross profit margin expanded by 100 basis points to 24.2% and SG&A grew 10.7%.

Operating income grew 19.3% and EBITDA 17.6% to reach an 8.9% margin, 60 basis points more than last year. Operating income and EBITDA doubled total revenue's growth.

Now summarizing the consolidated results. Total revenues grew 6.8%. We achieved expense leverage by growing expenses 5.7%, 110 basis points below total revenue growth.

Operating income grew 9.2% and EBITDA grew 9.1%, which led to a 20 basis points margin expansion.

We reached a double-digit margin on a consolidated basis of 10%.

Income from continuing operations posted a strong 12.5% growth.

Now we'll cover the full year financial results. Throughout the year, we invested MXN 17.4 billion in high-return projects to strengthen our business. This amount represented 21.7% more than in 2016 and is in line with our guidance.

Disciplined capital allocation is key to achieve our long-term goals. We're becoming more productive in remodels and new stores construction and thereby freeing capital to build foundation to become a more digitally enabled company. In order to fund these strategic investments, we managed to leverage our base expenses. We're committed to driving productivity and to managing expenses with discipline. We were able to reduce our expenses base by 44 basis points. Expenditures related to store remodeling and maintenance increased by 4 basis points, and we invested 15 basis points in new stores and eCommerce. An accounting reclassification of vendor allowances represented 8 basis points and one-time effects related primarily to the earthquakes that took place in September represented 10 basis points.

Despite a challenging year, Mexico kept its profitable growth momentum. Total revenues grew 7.6%. Gross margin expanded 20 basis points to reach 21.9%.

I would like to note that, as Gui mentioned at the beginning of the call, during the year, we widened our price gap by 40 basis points, and we were able to do so without impacting profitability.

As a result of our strong focus on productivity and disciplined expense management, we achieved expense leverage in Mexico by growing SG&A 60 basis points below revenues.

Operating income increased 10.6% and EBITDA 10% to reach a 9.9% margin.

Central America continues to improve profitability. Total revenues grew 8.7% on a constant currency basis. Gross margin improved 60 basis points to 24.1% and SG&A grew 10%.

Operating income and EBITDA grew 14.7% and 14.4%, respectively.

We achieved an 8.5% EBITDA margin in the region.

In this slide, we summarize Walmex consolidated results for the year. Total revenues grew 7.7%, gross profit margin expanded by 20 basis points to 22.3%. We achieved 20 basis points of expense leverage on a consolidated basis.

EBITDA grew 10.6%, above total revenue growth to reach a 9.7% margin.

Net income grew 19.5%, which is above total revenue growth.

As we move to the balance sheet, you can notice that our financial strength is further improving. Driven by strong cash generation from our operations, our cash position increased by 27.2% to MXN 35.6 billion, MXN 7.6 billion more than last year.

Inventories increased 10.8% primarily due to acceleration in new store openings during the fourth quarter, where we opened 58 new stores, 30 more than in fourth quarter 2016.

Accounts payable grew 21.5%, which led to improvement in working capital.

For the year, we generated MXN 54.5 billion, MXN 3 billion more than last year. Working capital has been a focus for us, and I'm really pleased with our discipline, especially in managing inventory and payables.

During the year, we returned MXN 42.8 billion in dividends to our shareholders and invested MXN 17.4 billion back into the business. We have a commitment to return excess cash to our shareholders. On February 21, 2018, we will distribute the final installment of last year's dividend declaration of MXN 0.16 per share.

Today, the Walmex Board of Directors agreed to recommend a proposal to shareholders' dividend of MXN 1.65 per share. We expect the annual shareholders' meeting to be held on March 22, 2018, to vote on the proposal. The proposed schedule for dividend payment is as follows.

In closing, I would like to summarize the key highlights of the quarter. Despite a challenging year, we were able to keep our strong performance. Walmex's undisputable price leadership and operational excellence are driving share gains. We are investing strategically to further expand our competitive advantage and continue delivering a strong result.

Thank you very much. And as always, we will make ourselves available to receive your calls to answer any questions you might have.

Operator

With this, we conclude Walmart de México y Centroamérica's Fourth Quarter 2017 Earnings Conference Call. You may now disconnect.